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About Financial Regulation
Countries operating in a market based economy regulate their financial sector on the basis of a regulatory framework for financial institutions which includes legal rules and a system of agreed prudential standards. Furthermore, the banking supervisory authorities of such countries expect the financial institutions to self-regulate themselves to a large extent. A key role of banking supervision is to monitor the application of the agreed prudential standards to limit risk. These standards should be reviewed periodically to allow for changing circumstances.
Although a great number of countries have adopted such a framework, to be effective, the framework must reflect the legal, commercial and cultural traditions of the nation – there is no one “best practice” supervisory framework that can be applied to all countries.
A supervisory and examination system is a key component of a financial institution regulatory framework. It ensures that financial institutions comply with the regulatory framework. It assesses whether financial institutions are able to meet their obligations as they fall due. It also gathers information to assist CBSI in further developing and improving its regulatory framework.
The Regulatory Framework in the Solomon Islands
The framework for regulating the financial sector in Solomon Islands consists of legislation (largely the CBSI Act and FIA) and the facility under FIA for a system of agreed prudential standards.
Whilst CBSI expects the licensed financial institutions to self-regulate themselves to a large extent, a key role of banking supervision is to monitor the application of the agreed prudential standards to limit risk. These standards should be reviewed periodically by CBSI to allow for changing circumstances.
The “rules and regulations” for the financial sector in SI are found in the Financial Institutions Act 1998 (as amended) which provides a supervisory umbrella and addresses issues such as:
Financial Institution Regulatory Framework
A supervisory and examination system is a constant continuous and perpetual cycle that has four components:
Prudential Supervision Policies
The following are the Prudential Guidelines issued by the Central Bank of Solomon Islands in September 2009.
This Prudential Guideline outlines the approach used by the CBSI in assessing the capital adequacy of financial institutions and is intended to assure that each financial institution maintains a level of capital which (i) is adequate to protect its depositors and creditors, (ii) is commensurate with the risk profile and activities of the financial institution, and (iii) promotes public confidence in ... Read more...
This Prudential Guideline establishes uniform standards to be followed by financial institutions to ensure that: (i) loans are regularly evaluated using an objective grading system that is consistent with regulatory standards; (ii) the accounting treatment for non-performing assets is consistent with recognized accounting practices and regulatory requirements; and (iii) timely and adequate ... Read more...
The purpose of this Prudential Guideline is to (i) assure that foreign currency positions are maintained within prudent limits to avoid excessive risk of loss to a financial institution’s capital as a result of fluctuations in foreign currency prices, (ii) promote ... Read more...
In its prudential supervision of licensed financial institutions the Central Bank of Solomon Islands (CBSI) seeks to satisfy itself that individual financial institutions are meeting prudential and statutory requirements and are following management ... Read more...
Excessive exposure to a single customer or group of customers is a significant risk for financial institutions and the CBSI sees it as highly important to protecting the safety and soundness of financial institutions to prevent excessive investments in or loans to any one person or group of interrelated ... Read more...
This Prudential Guideline outlines the approach used by the CBSI in its supervision of the liquidity of financial institutions. Read more...